Putting it to Work in Developing Countries - Nathan Associates

Outsourcing. The practice of moving an internal production
activity, task, or process to a location other
than the home base of an organization, in the home
country or overseas. Outsourced activities and related
facilities are not normally part of an enterprise’s core
activities (e.g., human resources functions of a car manufacturer).
The enterprise does not “own” the foreign
facilities doing outsourced work.
Overseas Private Investment Corporation (OPIC).
Organization created by an act of the U.S. Congress
that provides loans, guarantees, and insurance for doing
business in emerging markets.
Parent company. A multinational corporation’s home
country–based firm.
Performance requirements. Government rules stipulating
that foreign investors must meet particular national
objectives, such as a directive that a certain amount of
production be exported, or contain a specified proportion
of local content.
Policy Framework for Investment (PFI). A series of
OECD guidelines for creating a high-quality climate
for foreign and domestic investors. The guidelines
cover ten policy areas: investment policy, investment
promotion and facilitation, trade policy, competition
policy, tax policy, corporate governance, policies for
promoting responsible business conduct, human
resource development, infrastructure and financial sector
development, and public governance.
Political risk. Possibility that a political event, such as
war, or noncommercial development, such as economic
nationalism, will result in expropriation or will restrict
repatriation of FDI earnings.
Privatization. Partial or total sale of state-owned enterprises
and commercial interests to private investors.
Profit repatriation. Flow of FDI earnings back to the
parent company’s home country.
Production efficiency. Cost savings due to discovery or
us of new production processes or technologies.
Public investment. Expenditure by government on
public goods or government-owned companies.
“Race to the bottom.” Relaxation of environmental
and labor standards by countries to gain a competitive
edge in attracting FDI.
Regulatory framework for investment. The entire legal
and regulatory system governing the entry, operation,
and exit strategies of investors within a country or
region. A relatively well-designed, transparent, and stable
regulatory framework is important for all investment,
particularly foreign investment.
Reinvested earnings. Portion of profit of foreign subsidiaries
and associated enterprises (the direct investment
enterprise) not distributed as dividends or remitted
to the investor’s home country.
Resident investment adviser. Foreign expert who works
full time in a developing country’s investment promotion
intermediary to advise on the country’s investment promotion
agenda.
“Round tripping.” Domestic investment disguised as
foreign investment to qualify for tax and other incentives
available only to foreign investors. Investment
capital can also flow “out” to take advantage of higher
returns overseas and then flow “in” as foreign investment.
Can result in double counting of FDI inflow.
Often refers to Chinese investment in Hong Kong that
is reinvested into China to take advantage of preferential
treatment accorded foreign investment.
Services sector. Sector that produces a broad range of
nontangible products and is increasingly the largest in
most economies; includes banking and finance, transportation,
retail, tourism, travel, construction and
health, among others.
Singapore issues. Four issues on the WTO agenda:
investment, competition policy, trade facilitation, and
transparency in government procurement. At the WTO
Ministerial meeting in Singapore (1996), ministers
agreed to create working groups to explore a multilateral
framework for each issue. At the Cancun WTO
Ministerial in September 2003, countries failed to
reach consensus on future negotiations on any of these
issues. In the summer of 2004, WTO members agreed
to establish a negotiating group on trade facilitation,
but consensus on the remaining three Singapore issues
has remained elusive.
South-South FDI. Inward FDI into a developing
country from another developing country. Chinese and
South African companies are increasingly active
investors in Asia and Africa, respectively.
Spillover effect. Transfer or absorption of technology,
expertise, or productivity improvements to host-country
firms or sectors through interaction with direct
investment enterprises. See vertical and horizontal
spillovers.
Stock, FDI. Total value of foreign-owned assets in a
country at a given point in time. Can be measured in
terms of inward or outward flows of FDI.
Subsidiary. An incorporated enterprise in a host country
in which another entity directly owns more than
half of the shareholders’ voting power, or is a shareholder
in the enterprise, and has the right to appoint or
remove a majority of the members of the administrative,
managerial, or supervisory body.
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